Robust acquisition of Canadian properties continued last weekwith the announcement that Canadian producer Renaissance Energywill acquire fellow Canadian Pinnacle Resources Ltd. in a dealRenaissance CEO Clayton Woitas said “expands and strengthens ourexisting holdings and offers improved operating efficiencies.

“We have indicated for some time that we would pursueappropriate acquisitions that reflect our counter-cyclical strategyand will create value for shareholders. We have maintained anongoing review of prospective candidates, including Pinnacle. Thatpreparation enabled us to respond quickly to this uniqueopportunity. We are the obvious buyer given the similarity ofassets, operations and culture.

“We are acquiring a high quality portfolio that we know well;one that complements our own business; is located where we are orwant to be; and can generate value for our shareholders.”

Pinnacle shareholders will receive 0.66 of a Renaissance sharefor each Pinnacle share. The exchange ratio represents an offerprice of $16.76 per Pinnacle share, which is a 28% premium basedupon the closing prices of the companies’ shares on the TorontoStock Exchange June 5. Renaissance will assume Pinnacle’soutstanding debt of about $380 million resulting in a totaltransaction value of $1.06 billion if all Pinnacle’s shares aretendered. The offer for all common shares has the approval of theboards of both companies.

Pinnacle CEO Matthew Brister said, “Renaissance is a provenperformer with a strong focus on growth, profitability andshareholder value. We are delighted that our shareholders andemployees will be able to participate in this unique opportunitygoing forward.” The deal’s valuation works out to about $6.79 perbarrel of oil equivalent (Boe) of proven reserves as of Dec. 31.

“We see tremendous upside in three key areas of Pinnacle’sasset base,” Woitas said. He pointed to overlapping oil-relatedassets in southwest Saskatchewan and “unrecognized natural gaspotential in this region. Second, we see great opportunities inPinnacle’s Ansell and McLeod areas, which have been the focus ofPinnacle’s future natural gas growth.” The two companies also haveadjacent operations in the Athabasca North region “where continuedgrowth in natural gas reserves and production will be pursued andadditional operating efficiencies are expected.”

Earlier this month, Marathon Oil agreed to acquire Tarragon Oiland Gas Ltd. of Calgary, marking the company’s return to theCanadian E&ampP sector and illustrating how companies arecapitalizing on weakened Canadian equity values.

“It’s part of a trend,” said Verne Johnson, president of ZiffEnergy Group (See NGI June 8). He said the market hasn’t been asattractive for Canadian E&ampP opportunities since probably 1991.”It’s a combination of the price of oil, particularly, and thestock market, which has been for the most part very hard onCanadian E&ampP companies in the last six or eight months. Part ofthe stock market behavior is related to the price of oil, but itcertainly predates the price of oil sliding as much as it has. Itstarted last fall, and a big part of that was the Asian meltdown.Oil and gas stocks have never quite come out of that correction asother sectors of the market have, so the Canadian E&ampP companieshave suffered an extended and significant correction and it’s beencompounded by the price of oil.”

Other recent Canadian deals are Dominion Energy’s April purchaseof Archer Resources Ltd., a publicly traded gas exploration andproduction company headquartered in Calgary; and Union PacificResources Group’s March acquisition of Norcen Energy Resources.

Peter Linder, senior oil and gas analyst with CIBC Wood Gundy inCalgary, said the spate of Canadian acquisitions is a healthyprocess. “I’d like to see more Americans coming in here. I thinkthey’re very welcome, and I think we’ll be a lot better industrygoing forward with this process.”

He said he expects the trend to continue through this year andperhaps longer. “From my perspective there’s really no differencebuying a Canadian producer than a U.S. producer. The advantage isthat the Canadian producers’ assets are much cheaper than theequivalent assets of the U.S. producer, plus the added advantage ofa very low Canadian dollar value.

“We have a lot of Canadian producers – I’m sure there are a lotof U.S. producers as well – that have got themselves into troublefrom the combination of buying properties in 1996 and 1997 atinflated prices and have reached debt levels that are veryunhealthy and are unable to raise money from the equity market. Andbasically they’ve hit the wall. There’s no future. They can’tproceed. They’re stuck.”

Joe Fisher, Houston

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